NEW YORK Defense industry suppliers will have to cope with a drop in orders over the next few years due to defense budget cuts, analysts say.
"Research and development will come down first; procurement will come down shortly after," Boeing Co. supply chain director Dana W. Hullinger told participants at AMMs 6th Annual Aerospace Materials Conference in Pittsburgh. He noted that defense budget cuts of between $600 billion and $800 billion are projected over the next 10 years.
The cuts will lead to some defense projects being slowed or spread out over longer periods, Hullinger said.
The outlook was echoed by Robert J. Olsen, aviation lead for the industrial base group at the Aviation and Missile Research, Development and Engineering Center, which falls under the U.S. Army Research, Development and Engineering Command. "What were seeing is a lot of early stage programs and not a lot in the engineering and manufacturing phase," he said, adding that the military was more inclined to upgrade older programs than to approve new ones.
This had led to some supplier erosion and an increasing reliance on offshore manufacturers, a development Olson said was worrying. "Industrial capability is the key to national defense," he said.
Defense sector spending has declined by about 25 percent since 2008, according to Myles Walton, director for equity research on aerospace and defense at Deutsche Bank. "It doesnt feel like 25 percent yet because backlogs stretch out years."
One defense industry supplier told AMM on the sidelines of the conference that he had seen a significant slowdown over the past year. "Business has been terrible," he said.
While the defense sector is slowing downwith Hullinger saying he had already seen some suppliers go bankrupt this yearthe boom in commercial aircraft build rates raised concerns that suppliers would look to switch. "Will people get drawn to other parts of the business?" he asked.